Activity in the construction industry shrank at the fastest rate in three months, dragged down by new orders, new data showed today.
The Ulster Bank Construction Purchasing Managers' Index, which measures changes in total construction activity, fell to 46.4 in January, as new business shrank slightly due to weak client confidence amid uncertain economic conditions, and jobs were cut in the sector at the beginning of the year. This follows some indication at the end of 2011 that the industry was stabilising, with a reading of 49.9.
"The January reading of the Ulster Bank Construction PMI showed that the construction sector experienced contraction in activity last month. Having been very close to the expansion – contraction threshold of 50 last month, it fell to 46.4 in January, representing its fastest pace of contraction in three months," said Ulster Bank's Republic of Ireland economist John Fahey.
"The construction sector remains in a job shedding mode. The contraction in employment quickened over the month, with employment continuing to decline as it has done in each month since May 2007."
However, there were some encouraging signs, with morale about the sector's future improving. Although firms lowered their purchasing activity during January, the pace of contraction was the weakest in a year.
"Although the new orders index showed some renewed weakness in January, the decline took it to only slightly below the 50 mark, having been above 50 for two of the previous three months. This is consistent with the broad pattern of tentative signs of stabilisation in activity levels," said Mr Fahey. "In terms of industry expectations, overall, construction firms still expect activity to be higher in 12 months' time, with the level of optimism on this scenario increasing to its highest level since last May."
Meanwhile, commercial activity showed some signs of growth, with the index for that sector rising to 51.3, its first rise since October 2007.
Civil engineering sector continued to lag behind the other sectors, with a reading of 37.7.
"Indeed this level represented an acceleration in the pace of decline, meaning civil engineering is likely to continue to lag the other two sectors over the coming months," said Mr Fahey.
Bloxham said last month's prospect of stabilisation now appeared premature.
"Given the absolute low level of activity involved in the Irish construction sector, after over four and a half years of contraction, it would still appear reasonable to assume that we are near to an inflection point, if only due to the law of small numbers," analysts wrote in a note.
